When considering rental income for qualification, what percentage can be counted if not included on the tax return?

When evaluating rental income for qualification purposes, if this income is not reported on the tax return, lenders generally apply a percentage to ensure a conservative approach to income assessment. In this case, the standard practice allows for 75% of potential rental income to be counted, incorporating a 25% deduction for expenses or vacancies.

Using this methodology, lenders recognize that while rental income can provide a reliable source of cash flow, there are inherent costs and risks associated with rental properties, such as maintenance, property management, vacancy periods, and other expenses that reduce the net income received by the property owner. Thus, by considering 75% of the rental income, lenders maintain a balance between the potential income and the realities of property ownership.

This practice supports a more accurate picture of the borrower’s financial capability while still recognizing the value of the rental income in the qualification process for a mortgage.